Newcastle, who sacked manager Steve McClaren and replaced him with Rafa Benitez in March, could be relegated from the Premier League on Wednesday if Sunderland win at home to Everton.
Keegan, who oversaw Newcastle's most successful period in the Premier League and carried them to the brink of the title in 1996, before they were dramatically overhauled by Manchester United, said Ashley had made a series of mistakes.
"You have to say Mike Ashley hasn't handled the decision-making very well or he's given the responsibility to people and they haven't handled it very well," he told the BBC.
"They are going to have to go down and regroup. That's not going to be easy.
"You make mistakes in football and you get punished, especially the Premier League now. I think they will go down but they'll bounce back."
Ashley, a retail entrepreneur, is one of the wealthiest people in Britain and founded Sports Direct, the country's largest sporting retailer. He bought a majority shareholding in Newcastle from John Hall in 2007.
Newcastle were last relegated to the Championship in 2009 but have missed only two seasons in the top flight since the Premier League began in 1992.
They spent some 80 million pounds on signings in the last two transfer windows but have found themselves battling relegation all season and have won only eight games in the league campaign.
"It is mismanagement from the very top," added Keegan, whose Newcastle side were one of the most entertaining in their era but often defensively fragile.
"They bought players for the future but sometimes maybe you have to buy players for the present.
"It's all right having a few good young players from France but can they play in the Premier League now?
"If they can't, don't buy them or certainly don't play them. A few of them have found it very tough and the confidence goes and then even good players start to look pretty poor."
(Reporting by Toby Davis; editing by Clare Fallon)
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